Archive for December, 2012

Tobacco is a blooming plant that belongs to the nightshade family. It is the most largely harvested non-food crop and is preferred by farmers from more than 120 countries all over the world as it grows under extensively different climatic and soil factors in order to match the requirements of numerous diverse markets.

Generally the tobacco plant grows from 1 to 3 meters in height and delivers 10 to 20 leaves from its stalk. 90% of the world’s tobacco crop grows between 40º north and 40º south, even though} it can be cultivated at up to 60º north.

A native crop of the Americas, tobacco is grown especially for its leaves. Nevertheless, for industrial increase the flowers are chopped off in order to help the leaves to grow further to the stem. Distinctions in soil and climate provide leaves that have particular features and need diverse techniques of fertilization, disease control, harvesting and curing. All of the tobacco types belong to the Nicotiana genus, even though the main base of industrial tobacco is Nicotiana Tabacum. Nicotiana Rustica is also cultivated, although to a reduced extent, and widely used in Oriental tobaccos.

Farmers have elaborated an extensive variety of morphologically diverse types, including the small-leaved aromatic tobaccos, the large and even the broad-leaved cigar tobaccos. Nevertheless, each sort of tobacco is usually described by the treating approach applied to it.

Curing is the ultimate stage in the tobacco manufacturing. Afterwards, the leaves are sold to be converted into the ultimate tobacco product, namely cigarettes, cigars, small cigars or chewing tobacco. By means of curing, the moisture in the tobacco leaf is decreased from 80% to around 20%, thus guaranteeing the tobacco’s preservability. In addition, the diverse techniques of curing also boost the leaf’s pure aroma. As diverse smoking products need leaves with distinct features, the unique flavor of each sort of tobacco is what establishes its appropriateness for use in distinct smoking products.

In curing barns leaves are dried out for a significant period of time. Right after the curing process is finished and the leaf has dried out completely, fresh air is introduced into the curing barn, considerably moistening the leaves as to permit them to be moved for sale without falling apart.

At present there are four curing techniques used for curing tobacco cultivated for commercial reasons: Flue-curing, fire-curing, air-curing and sun-curing

The three leading U.S. cigarette companies may consider increasing cigarette prices in the coming week, though the raise won’t necessarily lift profitability as the industry’s representatives have increased promotions recently. Industry experts forecasted that the industry would launch in December their second cigarette price increase for this year, with the investment bank forecasting Altria to lift its prices by 6% to 7% per package.

Altria leads on pricing action, followed after the announcement by smaller competitors as Reynolds American and Lorillard. All three manufacturers haven’t still responded to the pricing speculation. It seems that, the price raise could lessen concerns investors and industry experts have boosted in recent months about the effectiveness of profits generated by the local tobacco companies. All three cigarette manufacturers have increased price promotions trying to win or defend market share as smokers are very affected by the weak economy.

Cigarette manufacturers have tried to put down all those worries by stating that the industry’s $14 billion profit is quite resilient, as new smoking products like moist snuff and e-cigarettes, as well as cost cutting, can help compensate decreases for regular cigarettes. However pricing power is still essential, as it helps cigarette manufacturers assure cash that the companies return to investors through dividend payouts and stock repurchase. All three players have increased price for two times in 2011, more precisely in July and December, and already in June this year.

With time, the higher prices haven’t necessarily affect consumers. Atria, which has been winning market share this year as the company passes promotions that lower prices for some of its smoking products, has in fact held back the pre-pack price for Marlboro. The net package price for Marlboro in the 2Q of 2011 was about $5.63, a figure that boosted by 15 cents as of the 3Q of 2012. However over the same period, Altria declared per pack increases that should have lifted the price by 20 cents.
Marlboro’s influence on the industry is essential. That best-selling brand controlled over 43% of the retail market share in the 3Q of 2012. “Just because they declare another price increase it doesn’t mean that they receive the whole benefit and doesn’t mean that the advertisement wars that we face in the industry are becoming better,” industry expert said. Cigarette shares had a great performance in 2011 and throughout the first half of this year as dividend yields and cash flows moved investors to the sector

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Australians purchasing cigarettes are currently assured to experience warnings that consist of pictures of a cancer victim as the world’s first law demanding cigarette sales in standard packages becomes effective.

Since December 1, all cigarettes in Australia should be sold in the standard packages, with the brand name moved to the bottom part of the package on a drab olive background. The conversion from branded cigarette packages to plain packaging started in October. “They’re so ugly that they are impressive,” Fiona Sharkie, executive manager of anti-smoking campaigner Quit Victoria, spoke about the innovative labels at the press conference. Plain packaging was the last action to eradicate smoking, she said.

According to estimates, the Australian government faces A$31.5 billion ($33 billion) in health costs from smoking each year. It fended off an obstacle from cigarette manufacturers, which failed in a suit to stop the plain packaging law on August 15 when the High Court of Australia declined a promise that the ban of the display of trademarks was equal to an illicit capture of their own property. The size of the illegal cigarette market in Australia is equal to approximately 15% of the legal industry, Deloitte LLP stated in a report on the cigarette industry. “This year’s Deloitte review of the illicit tobacco discovered that almost $1 billion in tobacco excise income was lost to crime bands,” Scott McIntyre, a representative for British American Tobacco (BAT) in Australia, informed today. “We anticipate additional increase in the illicit market right now that all packages will be less complicated to duplicate due to plain packaging.”

Not so long ago, Australian Customs and Border Protection grabbed a shipment of 10 million illicitly branded cigarette packages as the new regulation become effective. Customs representatives discovered the contraband while inspecting a sea cargo destined for Sydney, which was sated to contain ceramic tiles. The shipment contained nearly A$4 million in unpaid taxes, according to agency representatives. Customs and Border representative Campbell Massie refused to declare which brand the grabbed cigarettes were.

The Australian government has also made stricter the penalties for smuggling cigarettes, raising the maximum penalty to 10 years in jail.

BAT produces Dunhill, Pall Mall, Lucky Strike and Australia’s best-selling cigarette brand, Viceroy. Philip Morris International (PM) is also following the case in the international arbitration. The Australian suggestion infringes a treaty with Hong Kong and may lead to billions of dollars in injuries, the manufacturer of Marlboro cigarettes declared.

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Altria, Reynolds American and Lorillard all together presented 3Q profits this week, offering perspective on how the giant cigarette companies performed and what these performances may demonstrate for the financial quarter of 2012. “With all cigarette companies having presented, the main topics… emerged from 3Q,” Andrew Kieley, industry expert declared at the press conference under the name “Tobacco Wrap For Q3”. Such trends include the estimated: Cigarette volume decreased by 3% to 3.5%, with Altria’s volume up by 1.5%, Lorillard’s declined 2%, and Reynolds’ dropping 6.5%. To oppose low volumes, Mr. Kieley declared that cigarette pricing increased a bit: Lorillard les the charge, with pricing higher by 5.5%, followed by Reynolds – 3% and Altria – 1.5%. So how these estimates could affect cigarettes in the 4Q? “Promotion is quite competitive into the 4Q, and is affecting the stocks, however we do not believe that there would be a war. Manufacturers are for share, mostly in menthol, but are trying to stay rational,” stated Mr. Kieley.

Mr. Kieley also added that Lorillard is the most deliberate of the rest cigarette giants, with a need to decrease Newport’s gap, and he also underlined that Reynolds is paying greater attention on Pall Mall brand. “Altria is the leader among its competitors and it didn’t change its position. Management repeated profit-focus that this is a kind of unique year, and it is slowly easing promotion. We estimate a round of pricing in November to December, but it will be example to follow in the promotions within the 4Q.” And while tobacco companies are trying to maintain volume from other plummeting using their products, approximately two cigarette leaders are facing smokeless competition increase he segment: Mr. Kieley announced that volume raised by 6.55 for Reynolds and 5.6% for Altria, which plans to introduce another smokeless product in 4Q with Skoal Readycut.

With falling cigarette volumes, such innovative products is a essential factor to profitability in the overall tobacco category, a sphere Altria has realized to dominate, although Mr. Kieley supposes that the company may meet rather growing competition. “So, till now innovation remains with Altria, and Reynolds is trying to overtake it. Lorillard is still under pressure of FDA, however it decided to introduce e-cigarettes in order to stand the difficult situation,” Mr. Kieley said.

Imperial Tobacco, Europe’s second-largest cigarette manufacturer, announced higher operating profit as the producer of Davidoff cigarettes raised prices to fight falling shipments in Europe. Adjusted operating revenue increased to 3.15 billion pounds ($5.1 billion) within a year from 3 billion pounds registered a year ago. That compares with the 2.20 billion average forecasts of several industry experts. The stock increased approximately 2.5%, the most significantly since September 20.

Imperial Tobacco has presented cigarette packages that flip open with one hand and flavored filters to increase demand and compensate decreased consumption in Spain, where a worsening in the economy made it to take a1.2 billion-pound non-cash worsening charge. Price increases in the U.K., where Imperial is the market leader, also contributed to boost. Profit in the European Union lifted 5%.

“The situation in EU is complicated, but the company is doing its best to overcome this tough position,” Chief Executive Officer Alison Cooper stated in the interview. The stock was higher by 1.5% at 2,364 pence at London trading.

The operating margin for tobacco extended to 43% from 42.6%, which according to experts were positive despite increased marketing spending on the company’s key brands.

Imperial increased the full-year dividend 10% to 105.6 pence a share, bringing to a total payout of 53% of earnings. Industry experts have estimated a104.5 pence. Imperial Tobacco has also announced that it repurchased 530 million pounds of its own stock.

Cigarette revenue increased 5% to 8 billion pounds. Volume decreased 2.5%, better than the company’s September estimates of a 3.5% decrease and an improvement on the 4% fall in shipments during the first half. According to experts, shipments in the 2013 may decline 0.5%.

Imperial is proceeding to encounter complicated trading conditions in the majority of its European markets.

Imperial is the market leader in Spain and the second largest cigarette manufacturer in France and Germany. For instance, in Germany Imperial’s market share dropped by 0.7 percentage point to 25% as smokers give preference to lower-price brands.

The whole shipments of West, Gauloises and Davidoff brands gained 6%. All these cigarette brands constitute more than 30% of the Imperial’s volume.

U.S. accounts for approximately 9% of Imperial’s tobacco profit, where both the revenue and profit dropped by 10% despite a 5% decline in the cigarette market.